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How NVIDIA Stock Became a Wall Street Darling After Years Under the Radar

Published 07/16/2024, 02:24 PM
NVDA
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When NVIDIA (NASDAQ:NVDA) went public in 1999, it opened at $12 a share. While the company's huge success now is well earned, it took some time.

According to CEO Jensen Huang, they reached an "existential moment" after problems with their first two chips. At the time, he told Sega that he thought the chip architecture they'd been working on would be the wrong one because the world was moving in a different direction.

Ultimately, Huang and NVIDIA turned out to be right, and their ability to learn from those early challenges was one factor that brought massive success over the long term.

Years later, NVIDIA is getting things very right with its chip architectures, but this is just one example of how challenging it is to commercialize new technologies. In those days, semiconductors were a nascent technology, and companies had to predict where the "next big thing" would be in that technology.

The tech that makes the tech work: Chips for the energy transition

Today, this same problem continues, which is why some chipmakers have pulled the market forward while others have lagged behind, temporarily failing to accurately predict that "next big thing."

However, today we have the benefit of hindsight. We understand what makes technology work and what might be possible in the future. We even understand some of the most pressing issues facing our planet today — and what we must do to rectify those issues.

This is where technology enters the energy-transition discussion. Just as semiconductors have driven the most exciting areas of technology today, from artificial intelligence to electric vehicles, and the Internet of Things, so they will continue to drive other areas of technology, including the energy transition.

For example, new power-switching technologies like Ideal Power's (IPWR) B-TRAN™ have the potential to revolutionize the semiconductor industry — and all industries that incorporate such technologies. Renewable-energy solutions and electric vehicles are just two examples of technologies that require more efficient switching and power-semiconductor solutions.

Renewable-energy solutions equipped with B-TRAN™ would increase the number of kilowatt hours that can be harvested from them. Meanwhile, electric vehicles that incorporate B-TRAN™ would have more battery range and reduced thermal-management requirements versus EVs with conventional switches in them.

Ideal Power is currently in the midst of commercialization, having introduced and sold its initial products. Additionally, its program with top-10 global automaker Stellantis (NYSE:STLA) has moved from development to pre-production. For now, the company’s technology has not yet been incorporated into manufacturers’ products being sold into the marketplace. However, design cycles for industrial products last about a year, and the company’s first products are for industrial applications.

These technologies will help the grid and buildings "smarten up"

In terms of infrastructure, the electric grid requires a complete overhaul with energy-efficient components replacing aging, less efficient ones. Solid-state circuit breakers will play a major role in the transformed grid, and new power semiconductors will be needed to improve switching capabilities and reduce fault currents and electric arcs.

Updated power grids will also have to be "smart" so that they can improve energy efficiency further and support greater renewable-energy capacity into the mix of power. The International Energy Agency (IEA) estimates that about $600 billion must be invested in electric grids every year until 2030 to reach net-zero status. That's twice what's currently being invested.

On a large scale, some examples of companies working on smart grids are Siemens (BCBA:SIEGYm), GE Vernova LLC (NYSE:GEV), and Schneider Electric SA (OTC:SBGSY) (EPA:SCHN), although many small suppliers are building the components necessary to make power grids smart. For example, Enphase Energy (NASDAQ:ENPH) is working on micro-inverters that play a role in solar power. The company is also developing battery storage for renewable energy, another critical area of growth for the energy transition.

Similarly, buildings will have to be made "smart" or "green," and a whole host of suppliers will have a hand in that process, such as Owens Corning (NYSE:OC) and Kingspan Group PLC ADR (OTC:KGSPY).

Behind the scenes of commercialization

No matter what the size of the company, bringing new technologies to market comes with significant challenges, especially when dealing with under-the-radar technologies like components and semiconductors that will power the next big thing in technology. These components may not get as much attention on Wall Street, but the revenue and profit growth they will bring to successful companies are real drivers of long-term value for investors, especially those who buy such stocks earlier rather than later — before those increasing revenues and profits are incorporated into the share price and valuation.

While investors may have to dig deep to uncover these hidden gems, studying their commercialization processes may provide some hints into the timing of their success stories. Generally, there are four main stages of commercialization for new technologies: disclosure, patent protection, product sales, and licensing (although not all companies license their products).

However, within those stages are some other critical steps that must be taken to maximize the long-term success of the new technology. For example, key partnerships that will bring the company's technology into the spotlight call attention to the uniqueness and utility of it.

Ideal Power's partnership with Stellantis is demonstrating the benefits of using B-TRAN™ in EVs while providing or backing key data that demonstrates why B-TRAN™ will work better than conventional alternatives. Earlier this year, Ideal Power successfully completed Phase 2 of its partnership with Stellantis ahead of schedule, including a wafer run and delivery of tested B-TRAN™ devices and drivers.

Stellantis is also working with a number of startups to advance their technologies further, calling attention to those companies and their innovations as well.

Achieving success in commercialization

Commercializing new technologies requires not just capital but patience and a management team with the drive to succeed. Many of today's mega-cap tech companies were unprofitable for years, but investors who dug in and stuck with them during those difficult early years have been rewarded exponentially now.

While it's always going to be a challenge to pick tomorrow's winners in technology, investors who take their time, do their due diligence, and really analyze companies before investing may be more likely to enjoy exponential returns in the future if they buy at a lower price in the near term and hold for the long term.

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